PUBLIC WORKS

Hokitika Guardian, 10 August 1929, Page 3

PUBLIC WORKS

EXPENDITURE UNDERSTATED

ACCOUNTANCY SYSTEM BLAMED

WELLINGTON, Aug. 7

That the system of accountancy in New- Zealand has been responsible for a considerable understatement of the cost of public works constructed from loan money over a period of five years was conveyed in a .statement by the Controller and Auditor-General; (Mr |G. E. C. Campbell) in the ajjijpiial 1 report presented to the Honse'”of Representatives to-day. “it is a well-established principle of accountancy that where works are- constructed out of loan money it is proper that the interest on the loan for the •period during which the work is under construction, that is, until the work becomes revenue earning, should be charged as a part of the capital cost of the work,” states Mr Campbell. “A similar principle applies in the case of large additions to works. In New Zealand it has not been customary to follow this principle in the case of public works constructed out of loan moneys in the Public Works Fund, genera purposes account. The resut has been that not only lias the interest during construction become a direct and final charge on the ordinary revenue account of the Consolidated Fund and tlie .immediate burden on : the taxpayer thus been directly increased, but the cost of each work as shown in the accounts has been considerably understated. In the case of additions and improvements to the railways (but not in the case of new works) the interest during’construction' libs since- April Ist. 192.'), been charged in the railways- accounts, but is charged to revenue and not capitalised. In the case of large additions and improvements this Sometimes results in a heavy charge against the railway revenue (before the relative expenditure becomes revenue-producing.”

The importance of the matter was emphasised by an example in which Mr Campbell showed that a line of raiway costing £100,(100 and taking nve years to complete, interest being at the rate, of 5 per cent., would actually 'involve an expenditure of £112,500. Under the New Zealand'system only £IOOO,OOO would be charged as the cost of the railway, the £12,500 being charge to the Consolidated Fund and met out of general taxation'. Under the system usually followed in the case of undertakings run on cm mercial lines the whole £112,500 would be charged as the capital cost of ( thc railway, and the railway revenue would be expected to pay interest on that amount and not on £IXO,O 0 only. A reference to the accounts of the f-'ouHi African railways, a Government undertaking appeared to indicate that the accepted commercial principles were applied and that all interest charges incurred in connection with railway expenditure were brought into the rai'Way accounts and riot met from 1 general taxation. It was Clear that unless those principles were applied the railway accounts did not show the full cost of the undertaking. The remarks applied' not only to railways but to some other public Works which were constructed from loan money over a period of- years 1 .